Market cautious on HFCs; concerns over growth, asset quality weigh

The major players all seem confident of fast revival in demand once conditions normalise

Mortgages are a good sign of economic conditions. Buying a house is a high-ticket decision. Lower interest rates are a stimulus, though loans have long tenures and floating rates. Favourable demographics and high urbanisation should drive the industry. Against that, there were job losses in FY21, with up to 97 per cent of Indians seeing a decline in income.

Leading mortgage provider, HDFC, had Rs 10,446 crore in interest income from the mortgage business in Q4FY21, against Rs 10,963 crore a year ago and Rs 10,710 crore in Q3FY21. It had finance costs of Rs 6,566 crore versus Rs 7,662 crore (YoY) and Rs 6,832 crore (sequentially). The drop in interest costs boosted profits, though profits dropped sequentially at the consolidated level (this includes other businesses).

For FY21, disbursement of individual loans grew 3 per cent overall, with 60 per cent growth in Q4 despite a 37 per cent drop in Q1. The affordability of mortgages has risen due to tax incentives, lower stamp duty in Maharashtra, and subsidy for lower-income housing/economically weaker sections.

Individual mortgages have grown at 12-13 per cent. The average loan size is Rs 29.5 lakh. Overall non-performing loans are a little under 2 per cent; the ratio was stable in FY21. HDFC has 2.3 per cent of Stage 3 exposure at default.

Spread on loans (net interest margin) was 1.93 per cent for individuals and 2.29 per cent overall. Securities analysts retain consensus “buy” ratings but they have reduced FY22/23 earnings expectations by an average 7 per cent on lower growth assumptions.

LIC Housing is the second-largest mortgage institution. Its shares tanked on Wednesday after Q4 results. The PAT fell 5.33 per cent to Rs 398.9 crore in Q4 versus PAT of Rs 421.43 crore YoY. In FY21, PAT rose 13.8 per cent to Rs 2,734.3 crore, from Rs 2,401.8 crore in FY20. The net interest income rose 33 per cent YoY to Rs 1,505 crore, from Rs 1,134 crore. The net interest margin (NIM) was 2.66 per cent against 2.17 per cent a year ago. But the impairment cost rose to Rs 977.19 crore, from Rs 27.25 crore a year ago. Gross non-performing assets (Stage 3 exposure at default) rose to 4.12 per cent in March 2021, from 2.86 per cent in March 2020.

Another large mortgage provider, PNB Housing has faced controversy due to the issuance of Rs 4,000 crore worth of shares to American PE giant Carlyle Group. There’s an issue of apparent conflict of interest, with many PNB Housing Board members having links to Carlyle. The parent PNB may see shareholding fall below the threshold 26 per cent. In addition, the National Housing Bank has fined PNB Housing Rs 80,000 for violations in loan disbursal in 2015.

PNB Housing had a consolidated PAT of Rs 127 crore in Q4FY21 versus a net loss of Rs 242 crore a year ago. Sequentially, the PAT was down from Rs 232.40 crore in Q3FY21. Gross non-performing assets rose to 4.44 per cent from 2.75 per cent in a year.

The major players all seem confident of a fast revival in demand once conditions normalise. The market response seems to be cautious going by the fact that share prices have not moved up since results were declared.